The long-term effects of crippling student loan debt

Close to half of all American families have outstanding student loan debt. Not only has the number of debtors increased, but the average debt burden has swollen considerably, especially for young adults. And that fact is already starting to have negative repercussions, for families and for the economy.

The average class of 2015 graduate holds roughly $35,000 in student loan debt alone.[1] Adjusting for inflation, that’s almost twice the amount that the average graduate owed in 1995, and over $14,000 more than the class of 2005.[2]

Holding this rapidly multiplying amount of debt has serious financial implications for recent graduates and young adults. Median net worth of young households is a full seven times greater for those without student debt ($64,700) than those with student debt ($8,700).[3] Student debtor households tend to owe relatively large amounts of other debt too, like car loans and credit card debt. And a recent study from UNC Greensboro and the Federal Reserve Board found that “more student debt is associated with higher probability of being credit constrained and greater likelihood of declaring bankruptcy…homeownership rates may also be affected.”[4]

(Rising student loan debt isn’t just a problem for recent graduates, by the way. The majority of people paying student loan debt are over 30. Additionally, “thirty-six percent of families in a household headed by someone ages 45 to 54, 29 percent of families in a household headed by someone ages 55 to 64, and 13.3 percent of families in which the head of household is between the ages of 65 and 74 hold student debt.”[5] Six percent of the individuals who owe education debt hold that debt for their child or grandchild. And young adults are increasingly likely to stay in their childhood homes for financial – often debt-related – reasons.)

North Carolina is currently below the national average for student loan debt, but that doesn’t make it immune from these economic realities. In the 2013-2014 academic year, 61 percent of North Carolina college students graduated with student loan debt,[6] and that debt averaged just over $24,000.[7] That same year, 12.4 percent of North Carolina debt holders defaulted on their loans.[8]

The state of student loan debt starts to come into focus in the context of rising tuition costs. In the 2004-05 academic year, no North Carolina school charged more than $5,000 for tuition and fees. By 2014-15, 12 schools did, and 3 of those charge more than $8,000. We’ve seen an overall increase of 74 percent in 10 years. State funding for our public colleges and universities has increased by only 52 percent in the same time, and by only 2 percent since 2008.

Recent research shows that stagnant or falling state funding is the primary driver behind tuition increases, shifting a higher financial burden onto the students. That shift won’t just result in low-income students getting priced out of quality education. It will also have long-term ramifications on the state economy as students take out more loans and defer milestones like homeownership or even starting their own households.

[4] Thompson, Jeffrey and Gicheva, Dora. (February 2014). The Effects of Student Loans on Long-Term Household Financial Stability. Department of Economics, University of North Carolina at Greensboro. Available at